Prosperity Versus Planning: How Government Stifles Economic Growth

Prosperity Versus Planning: How Government Stifles Economic Growth

Synopsis

Are the nations of the Western World more productive than other nations? Are they wealthier because of their market-oriented economic institutions? Should Third World nations follow this approach with their economic development? This volume explores the opportunities for economic development as well as potential development obstacles. It challenges conventional wisdom by arguing that foreign aid is largely harmful and multinational corporations are quite beneficial to the people of the Third World.

Excerpt

This book has been several years in the making. When it was begun the Berlin Wall was intact; countries in the Warsaw Pact were armed, if not exactly dangerous; and the idea that communism or socialism was about to collapse was unthinkable. Those advocating a free-market approach were generally dismissed as reactionaries and ideologues.

The dominant development model, for both the development experts outside the Third World and the development practitioners inside it, was that of interventionism if not outright socialism.

Government, it was believed, was necessary to ensure that enough of what was earned was being saved, that investment was occurring in the right places, that the country was industrializing rapidly enough, that farmers were planting the right crops in the right amount, that families were having the correct number of children, that foreign investors were investing in the right places, using the right equipment, and paying the right wages, neither too high nor too low. No matter what the problem, government, it seemed, was the solution. That the government could be the problem rather than the solution to Third World economic lethargy was regarded as an idea bordering on lunacy. There were, of course, those intrepid few, Lord Peter Bauer in particular, who raised their voices in dissent. They pointed out that the king had no clothes; that far too often the results of the interventionist model were counterproductive to the point of tragedy. Few listened. The tragedies continued.

But in light of the African famine of the mid-1980s and the so-called collapse of '89 in Eastern Europe and the Soviet Union, the gap between interventionist promise and interventionist performance simply became too glaring to ignore. As events put the interventionist model on the defensive, it suddenly became permissible to question government's role in the economy.

This book is an attempt to present an alternative development model that is 180 degrees removed from the interventionist paradigm. Arguing on both theoretical and empirical grounds that the most effective means to promote economic growth is to establish a wall of separation between government and the economy, it proposes maximizing the role of the market while minimizing that of the government. While this may not guarantee economic growth, at least it does not preclude it at the outset. To put it in social science terms, the wall of separation is a necessary but not a sufficient condition for economic growth and development.

In the absence of government control, however, how can one be sure that resources will not be wasted or consumed too rapidly, that families will not have too many children, that enough of what is earned will be invested and that invest-